Finance and Banking in the European Union

Center:

European Union

Program(s):

European Union [1]

Discipline(s):

Economics

International Business

Course code:

EC/IB 342

Terms offered:

Fall

Spring

Credits:

Language of instruction:

English

Instructor:

Dr. Gerhard Kempter

Description:

An analysis of international finance and bank management with particular emphasis on the structure and operation of banking systems and capital markets within the European Union. The course covers the instruments and methods of international financial intermediation, the European Monetary Union (EMU), the Euro, and the reforms in EU-associated East-Central Europe, with regard to their impact on banks, insurance companies and capital markets from the EU to the U.S.

Prerequisites:

Previous course work in economics, finance or banking.

Additional requirements:

Additional Resources:

Artis, Michael, Axel Weber, and Elizabeth Hennessy, eds. The Euro: A Challenge and Opportunity for Financial
Markets. London/New York: Routledge/SUERF, 2000
Centre for Economic Policy Research discussion papers: www.cepr.org [2]
Deutsche Bank Research Enlargement Monitor: Reports: www.dbresearch.com [3]
European Central Bank: Monthly Bulletin, working papers and speeches: www.ecb.org [4]
European Investment Bank: Working Papers: www.eib.org [5]
European Bank for Reconstruction and Development: Reports: www.ebrd.com [6]
EU-Commission: Bulletins, reports, working papers: europa.eu.int/comm.
European Financial Management: www.efmaefm.org [7]
IMF Publications: www.imf.org [8]
Standard and Poors Rating Direct: www.standardpoors.com [9]
United Nations Economic Commission for Europe: www.unece.org [10]

Learning outcomes:

The course objectives are to develop understanding of risk management, the function of different exchange rate systems and the advantages and disadvantages of a common currency. At the end of the course the students should be able to understand the characteristics of corporate finance and corporate governance and the possibilities and limitations of central bank monetary policy to the benefit of a nation’s economy.

Method of presentation:

Discussion, case studies, lectures, and student presentations.

Required work and form of assessment:

Active class participation and homework (25%), presentation, handout, and outline (10%), midterm (15%), final exam (30%), term paper (20%)

Term paper & Presentation: Each student is assigned one presentation on either a case study or discussion topic. Presentations must be prepared with a handout. Each student is allowed ca. 10 minutes for presenting their topic. Term papers are 8 - 10 pages long papers based on the chosen topic for presentation in class. Together with the presentation, students turn in a short outline of the paper consisting of a thesis statement and at least three sources used for the presentation. The paper must meet the requirements as published in the writing guide published on the moodle page. Deadline for the papers vary based on the chosen topic. Each paper is due one week after the given presentation. In case of a field trip in between, the paper is due in the first session after the field trip.

Midterm: The midterm examination is an oral exam of about 5 to 10 minutes. The instructor will provide a study guide containing 12 questions. At the beginning of the midterm, each student will be assigned one question from the study guide that is then discussed with the instructor.

Final Exam: Written exam at the end of the semester. The instructor will provide detailed information at the end of the term.

Emile Zola: Money: This book is a reading assignment for the entire semester. At the end of the course each student is required to summarize the book in no more than half a page. Students should note the most important aspects of the book as they see it. This is the basis for the final discussion. Students must be prepared to present their view on the book.

Reading assignments: Reading assignments to prepare class sessions will be posted on moodle.

content:

“Overture”: Finance and Banking in the European Union.

Who is Who?, Expectations, Introduction and Presentation of Learning Goals, Timetable, Student
Presentations / Case Studies

Interest Rates and Money

Function and Meaning of Money, History of Money, Money Theory, Philosophy

Banks and Financial Institutions (Section 1)

What is Banking?, Meaning and Importance of Banks and Banking Industry, Overview of Different
Banks (Universal/Commercial Banks vs. Investment/Specialized Banks, Glass-Steagell Act)

Banks and Financial Institutions (Section 2)

Financial Markets and Participants, In-depth Understanding of Commercial Banks, Investment Banks, Asset Management (Development in Europe Business Models, their approach)

Banking Risks (Section 1)

Theory of Risk, Overview, Operative and Strategic Risks (Functions and Types of Financial Risks, Measurement and Risk Identification)

Banking Risks (Section 2)

Focus Banking Risks: Main Banking Risks and Effective Risk Management / Hedging Techniques

Banking Risks (Section 3) Case Study 1: “How to deal with risk in relation to real money”

Asset Management Example, (Risk) Management of an Investment Fund

Banking Risks (Section 4) Case Study 2: “ The Financial Market Crises 2008”

Reasons, Interpretation of the Financial Crises 2007/2008

Corporate Governance in the Euro area

Characteristics of Corporate Finance and Corporate Governance in the Euro area / Compared to the US

Ownership Structure and Investor Relations

Ownership Structure , Rating Agencies, Financial Transparency and Information Disclosure (Accounting
Practices, “Comply or Explain”)

Banking Regulations

Banking Regulations until Financial Crisis and Thereafter (Basel II) for the Future – Comparison USA and EU
Study Guide for oral exam

The European Union 1945 to 2010 (Focus: Economy, Banking, and Finance)

History and Development from WW II to European Union (Founding European Economic Community, European Monetary Union) (International) Importance Now vs. Then. The Creation of Monetary Zones and Optimal Currency Areas

The European Monetary Union (EMU)

History - the Evolutionary Process - and Development, Importance and Outlook (From Bretton Woods to the EMU: Pegging, Floating, Managed Float), Coordination of European Monetary and Exchange Rate Policies, Functions and Usage of the ECU

The European Central Bank and Economic Policy

The Transition from the European Monetary Institute (EMI) to the European System of Central Banks (ESCB), the Institutional Setting, Monetary Policy Instruments, the Stability and Growth Pact, US Fed vs. the Deutsche Bundesbank vs. the ECB

Banking within the EU and the EMU

Implications of EMU on Banking and Financial Markets (Effects of EMU on the Banking Systems and
Bank Consolidation. Banking Strategies after the Euro.)

The Euro (Section 1)

The Euro’s International Role and Implications on the US Dollar (The Euro as International Currency, Implications for International Financial Markets)

The Euro (Section 2)

The Euro and Central European Transition / Application Countries (EU Enlargement: Criteria, Candidates and Process)

Summary and Repetition

What all Students Must Know and Memorize, What Good Students Should Remember, What Excellent Students Will Remember Discussion of book

Visit to local business

Date and time will be announced in class.

FINAL EXAM

Brief Biography of Instructor:

Dr. Gerhard Kempter holds a MBA and a PhD in economics from the University of Cologne. He was a fellow with the German Marshall Fund and worked in various managing positions for the Deutsche Bank, both in Germany and the USA. In 1998, he joined the Volksbank Freiburg to become its Chief Credit and Operating Officer (Member of the Board). He founded his own family office in 2007. He is member of various advisory boards and is Chairman of the Board of Trustees of the Walter Eucken Institute e.V., Freiburg